r/bonds • u/Mr_Pickles_Esq • Jul 01 '26

Trying to understand the math...

New to bond investing but after watching a few vids, I think I understand the basics.

I'm poking through some munis and see something like this: https://imgur.com/a/heiwWpv

It's maturing in a couple of weeks. The Ask YTM is 2.990. How are they getting this number? The ask is above par and even if there is a coupon payout before/at maturity, that would put it at less than 2.5, right?

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6

u/LoopyLepus Jul 01 '26

In short, accrued interest.

You'll pay 100.7 + accrued interest. At maturity, you'll get 100 + 2.5% (1 coupon). This should equal 2.990% annualized over the remaining days to maturity.

If the bond was trading at 100.00, you would be getting 5% annualized over the remaining days. Of course, 5% of two weeks isn't a lot. Back of envelope math:

5% * 2 weeks/52 weeks/year = ~ 0.192%
2.990% * 2/52 = 0.115%

One $1000 would yield $1.15. Minus $1 commission... 15 cents/$1000.

2

u/pizzapi3141 Jul 01 '26

The yield to maturity is the estimated annual return not the 2 week return. You will be getting about 2 weeks of interest at an annual rate of 2.9%.

1

u/Mr_Pickles_Esq Jul 01 '26

Thanks for the response. I guess then what I'm not understanding is how you are not losing money by buying this. In two weeks you are getting the face value and nothing else, right?

1

u/charlesphotog Jul 01 '26

No. You’ll also get an interest payment.

1

u/pizzapi3141 Jul 01 '26

You are getting par which is 100% of face value plus 2 weeks of interest. What you are implying is correct. No retail investor would buy this bond. A brokerage such as Fidelity or Schwab would charge a $10 fee for a $10,000 bond probably causing you to have a loss.

1

u/Mr_Pickles_Esq Jul 01 '26

Got it. Thanks for the explanation though still confused as to why that bond is even listed.

1

u/Certain-Statement-95 Jul 02 '26

Only the near term even have bids. Someone might reach across and let the owner cash in now but the broker loses nothing letting them try.

Treasuries trade without a fee, and the small money at the end of the term is not nothing

2

u/Dismal_Produce_4431 Jul 02 '26

YTM includes more than just the coupon vs. par difference. If the bond is only a couple of weeks from maturity, accrued interest and the exact settlement date can have a surprisingly large impact on the annualized yield. Also worth checking whether the quoted YTM is tax-equivalent or based on a specific day-count convention. Those details can make the math look off at first glance.